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High-road contracting standards refer to a business standard of productivity and efficiency rooted in environmental sustainability, livable wages, and shared prosperity and inclusion. These standards are embedded in most public sector projects, RFPs, selection criteria, and contracts. They rarely exist for private, commercial building owners. There is a culture shift that is underway in the building industry, for both environmental and social considerations, that high-road contracting standards can help address. To conduct high-road contracting and increase supplier diversity, building owners and property managers must set clear goals and align employee incentives. This document lays out elements of best practices for building owners to design their own high-road contracting standards and sample tools to help implement them.
What is high-road contracting?
Contractors in the commercial real estate industry differ greatly from one company to the next, and it can be difficult for those procuring services to find who they need, let alone to make fair comparisons among vendors. Most public agencies will not certify the qualifications of contractors beyond their residency and license to do business in a particular geography or trade. This leaves procurement teams with a great deal to sort through, and it can be easy to default to companies that have been previously hired or used by peers rather than exploring the full measure of available contractors.
High-road contracting standards provide the navigation tool for broadening your supply chain. The high-road concept dates back to 1990 and refers to a business standard of productivity and efficiency rooted in environmental sustainability, livable wages, and shared prosperity and inclusion. Since then, numerous studies have validated high-road practices.
Companies wishing to increase equity in their contracting must pause before each procurement and critically examine how the process will align with company values, and what opportunities might be available from expanding their search. By following high-road procurement principles, it is possible to streamline the procurement effort while also receiving higher-quality services, supporting company values, and achieving investor reporting goals for Environmental, Social, and Governance (ESG) efforts.
High-road contracting follows the “best value” principles of procurement as opposed to “lowest-cost” approach. Best value involves assessing contractors along a set of criteria that include: 1) business reputation, certifications, practices, and standards; 2) organizational and project experience and staffing; 3) technical approach and equipment; and 4) social and community benefits, including workforce and supplier diversity.
A core element of high-road contracting is how a company addresses labor issues: compensation and skills, as well as diversity and inclusion. High-road contractors pay their workers livable wages, offer a competitive benefits package, and encourage continuous training. These contractors use subcontractors with similar qualities and they embrace diversity and inclusion within their workforce and contractor policies and protocols.
Why switch to high-road contracting?
Since high-road contractors value continuous training, their skills can pay dividends over the operational lifespan of a building as the decisions in design, development, and construction can saddle building owners and managers with unnecessary operational costs for decades. Having a skilled contractor at the outset can help prevent those issues, with knowledgeable staff who can find creative and cost-effective solutions early on, leaving the building more energy efficient and likely more valuable for a future sale.
Additionally, buildings are in a period of rapid change. Already, tenants are demanding healthy buildings, which are increasingly created through investments in building automation systems, such as sophisticated air-flow management, carbon dioxide sensors, and occupancy analytics. Meanwhile, the shift to online retail and telework is making commercial real estate markets more competitive, shifting the power to tenants, who also need to show progress on ESG goals. Jurisdictions are increasingly concerned with building-related climate impact, so there are also added compliance requirements for activities such as the District of Columbia’s performance-based Building Energy Performance Standards. All of this means that building owners and managers need to select contractors who know what’s coming, have the best-trained people on staff, and who can help position projects for long-term success, not just the initial building creation. High-road contractors help provide that assurance.
Making the switch: best practices
High-road contracting standards are embedded in most public-sector projects, RFPs, selection criteria, and contracts. They rarely exist for private, commercial building owners. There is a culture shift that is gradually underway given the aforementioned changes in the building industry. Of primary importance for private-sector actors is a shift from a short-term cost focus to a longer-term return on investment for both the project and the company.
The perspectives, best practices, and recommendations set forth herein are based on public-sector processes and adapted to meet private-sector needs with the intent to provide base practices from which building owners can design their own high-road contracting standards.
Design solicitations with diversity and inclusion in mind
In the commercial building sector, an effective supplier diversity program requires commitment from the owner or uppermost levels of leadership in an organization because it typically involves a paradigm or culture shift. To conduct high-road contracting and increase supplier diversity, building owners and property managers must set clear goals and align employee incentives.
Large contracts, typically those greater than approximately $2.5 million in fee, are often too large for the available pool of small contractors, because of limits in insurance coverage. Projects (in whole or parts) should be “unbundled” into smaller bid opportunities to increase the likelihood of bidder/supplier diversity. Alternatively, high capital, bonding, and insurance requirements should be lowered for firms that have historically experienced discrimination in bank and insurance lending. These business practices are pervasive today, be they inadvertent or intentional, and can create noticeable difficulties for small, minority-owned, women-owned, or historically disadvantaged firms to be competitive in the market. Taking that into consideration, solicitations should be designed and executed with diversity and inclusion in mind.
The standard for public and private businesses is to use a solicitation document to procure goods or services, including those related to construction and maintenance. A high-road solicitation, however, goes further than the standard in requesting information about the contractor’s current or proposed efforts around diversity and inclusion.
Require and reward “good faith efforts”
An example of how to increase diversity participation on a project is to require bidders to undertake “good faith” recruitment efforts including:
- Targeted and dedicated outreach through minority trade, community, or contractor organizations or government directories.
- Breaking scopes of work into feasible units to facilitate minority participation.
- Providing assistance in getting required bonding or insurance or provided alternatives to bonding or insurance for minority subcontractors.
- Negotiating in good faith with interested minority businesses and did not reject them as unqualified without sound reasons based on their capabilities.
- Providing assistance to an otherwise-qualified minority business in need of equipment, loan capital, lines of credit, or joint pay agreements to secure loans, supplies, or letters of credit, including waiving credit that is ordinarily required.
- Assisting minority businesses in obtaining the same unit pricing with the bidder’s suppliers in order to help minority businesses in establishing credit.
- Negotiating joint venture and partnership arrangements with minority businesses in order to increase opportunities for minority business participation.
- Providing quick-pay agreements and policies to enable minority contractors and suppliers to meet cash-flow demands.
How to find diverse-certified contractors
Corporations and developers often indicate that identifying diverse-certified contractors, suppliers, consultants, or vendors is a challenge. One solution lies with the organizations that certify small, minority- and women-owned businesses and other disadvantaged enterprises, which often grant their members or sponsors access to the list of certified businesses. Access to the businesses certified by government agencies is free. A greater challenge than locating certified businesses is determining the capacity of the business to pursue, win, and execute services. This is solely contingent upon the entity procuring the services to have the acumen to discern or gauge potential candidates’ preparedness.
Pathways to locate diverse-certified businesses include:
- Searching the directories of the certifying agency or association
- Accessing the local chambers of commerce
- Advertising (radio public service announcements, newspapers, trade publications, email blasts, newsletters, websites of trade and professional associations)
- Hosting outreach meetings, events, webinars, and workshops
Best value vs. low-cost selection criteria
Best value is the basis for awarding contracts for services which optimizes weighted factors such as quality, cost, diversity, and performance, among responsive and responsible candidates. This approach should be, to the extent possible, an objective, and quantifiable analysis of “best value” criteria set out in the proposal.
Best value criteria may include and be ranked against commitment to schedule, past project experience and performance, diverse-certified or commitment to diversity, safety record and plan, financial stability, price, experienced management team, commitment to local hiring, and project methodology. The lowest price does not guarantee the best value if diversity and inclusion rank high on the list of award criteria.
Monitoring and performance
Few would argue with the statement “What gets measured gets done.” The common equivalent to this phrase across many industries is key performance indicators. The District has standardized forms, such as a Vendor Verification Form, Equity & Development Participation Report, Documentation Requirements of Additional Outreach Efforts, and Compliance Reporting Instructions that can be adapted for private building owners to track their efforts.
Understanding Diversity Certifications in DC
The District has its own certification program and processes that is administered by the Department of Small and Local Business Development (DSLBD) for businesses that are headquartered in the District. In the Certified Business Enterprise (CBE) program, certification as a Local Business Enterprise (LBE) is a prerequisite to be certified in any additional business enterprise category within the CBE Program. Upon meeting all LBE requirements, a business can request certification under the corresponding subcategories:
- Local Business Enterprise
- Disadvantaged Business Enterprise
- Small Business Enterprise
- Development Enterprise Zone
- Resident-Owned Business
- Longtime Resident Business
- Veteran-Owned Business
- Local Manufacturing Enterprise
- Joint Venture Certification
Search the District’s certified business directory.